9. Shares and Stockholders’ Equity

Common Shares

The changes in our common stock (number of shares) were as follows:



	For the Three
	Months Ended
	March 31,
	2017		2016
Common Stock
Balance as of beginning-of-year	226,335,105		243,835,893
Stock issued for exercise of warrants	45,294		24,813
Stock compensation/issued for benefit plans	1,371,831		660,605
Retirement/cancellation of shares	(2,863,971	)	(5,516,059	)
Balance as of end-of-period	224,888,259		239,005,252

Common Stock as of End-of-Period
Basic basis	224,888,259		239,005,252
Diluted basis (1)	228,934,631		242,176,232

⁽¹⁾

Effective October 1, 2016, we early adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. We have updated certain previously reported interim results and metrics as of January 1, 2016, in accordance with the new guidance. For more information, see Note 1 – Earnings Per Share in our 2016 Form 10-K.

Our common stock is without par value.

Average Shares

A reconciliation of the denominator (number of shares) in the calculations of basic and diluted earnings (loss) per common share was as follows:



	For the Three
	Months Ended
	March 31,
	2017		2016
Weighted-average shares, as used in basic calculation	225,619,803		241,676,363
Shares to cover exercise of outstanding warrants	1,023,429		1,101,947
Shares to cover non-vested stock (1)	1,675,799		1,063,150
Average stock options outstanding during the period	2,681,129		1,806,644
Assumed acquisition of shares with assumed proceeds
from exercising outstanding warrants	(150,236	)	(291,520	)
Assumed acquisition of shares with assumed
proceeds and benefits from exercising stock
options (at average market price for the period) (1)	(1,619,156	)	(1,299,510	)
Shares repurchasable from measured but
unrecognized stock option expense	(77,078	)	(1,103	)
Average deferred compensation shares	949,815		1,039,929
Weighted-average shares, as used in diluted calculation (1)	230,103,505		245,095,900

⁽¹⁾

In the event the average market price of LNC common stock exceeds the issue price of stock options and the options have a dilutive effect to our earnings per share (“EPS”), such options will be shown in the table above.

We have participants in our deferred compensation plans who selected LNC stock as the measure for the investment return attributable to all or a portion of their deferral amounts. For the three months ended March 31, 2017 and 2016, the effect of settling this obligation in LNC stock (“equity classification”) was more dilutive than the scenario of settling in cash (“liability classification”). Therefore, for our EPS calculation for these periods, we added these shares to the denominator and adjusted the numerator to present net income as if the shares had been accounted for under equity classification by removing the mark-to-market adjustment included in net income attributable to these deferred units of LNC stock. The amount of this adjustment was less than $1 million and $7 million for the three months ended March 31, 2017, and 2016, respectively.

AOCI

The following summarizes the components and changes in AOCI (in millions):


	For the Three
	Months Ended
	March 31,
	2017			2016
Unrealized Gain (Loss) on AFS Securities
Balance as of beginning-of-year	$	1,784		$	991
Unrealized holding gains (losses) arising during the period		530			2,469
Change in foreign currency exchange rate adjustment		19			7
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		(121	)		(661	)
Income tax benefit (expense)		(151	)		(641	)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(3	)		(44	)
Associated amortization of DAC, VOBA, DSI and DFEL		(7	)		(2	)
Income tax benefit (expense)		4			16
Balance as of end-of-period	$	2,067		$	2,195
Unrealized OTTI on AFS Securities
Balance as of beginning-of-year	$	25		$	26
(Increases) attributable to:
Gross OTTI recognized in OCI during the period		-			(26	)
Change in DAC, VOBA, DSI and DFEL		-			6
Income tax benefit (expense)		-			7
Decreases attributable to:
Changes in fair value, sales, maturities or other settlements of AFS securities		7			(14	)
Change in DAC, VOBA, DSI and DFEL		(1	)		4
Income tax benefit (expense)		(2	)		3
Balance as of end-of-period	$	29		$	6
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	49		$	132
Unrealized holding gains (losses) arising during the period		20			(129	)
Change in foreign currency exchange rate adjustment		(20	)		(11	)
Change in DAC, VOBA, DSI and DFEL		(2	)		(4	)
Income tax benefit (expense)		1			50
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		7			7
Associated amortization of DAC, VOBA, DSI and DFEL		-			(1	)
Income tax benefit (expense)		(2	)		(2	)
Balance as of end-of-period	$	43		$	34
Foreign Currency Translation Adjustment
Balance as of beginning-of-year	$	(27	)	$	(5	)
Foreign currency translation adjustment arising during the period		2			(2	)
Balance as of end-of-period	$	(25	)	$	(7	)
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(265	)	$	(299	)
Adjustment arising during the period		(2	)		2
Balance as of end-of-period	$	(267	)	$	(297	)

The following summarizes the reclassifications out of AOCI (in millions) and the associated line item in the Consolidated Statements of Comprehensive Income (Loss):



	For the Three
	Months Ended
	March 31,
	2017			2016
Unrealized Gain (Loss) on AFS Securities
Gross reclassification	$	(3	)	$	(44	)	Total realized gain (loss)
Associated amortization of DAC,
VOBA, DSI and DFEL		(7	)		(2	)	Total realized gain (loss)
Reclassification before income							Income (loss) from continuing
tax benefit (expense)		(10	)		(46	)	operations before taxes
Income tax benefit (expense)		4			16		Federal income tax expense (benefit)
Reclassification, net of income tax	$	(6	)	$	(30	)	Net income (loss)

Unrealized OTTI on AFS Securities
Gross reclassification	$	-		$	-		Total realized gain (loss)
Change in DAC, VOBA, DSI and DFEL		-			-		Total realized gain (loss)
Reclassification before income							Income (loss) from continuing
tax benefit (expense)		-			-		operations before taxes
Income tax benefit (expense)		-			-		Federal income tax expense (benefit)
Reclassification, net of income tax	$	-		$	-		Net income (loss)

Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	2		$	1		Net investment income
Interest rate contracts		(4	)		-		Interest and debt expense
Foreign currency contracts		4			6		Net investment income
Foreign currency contracts		5			-		Total realized gain (loss)
Total gross reclassifications		7			7
Associated amortization of DAC,
VOBA, DSI and DFEL		-			(1	)	Commissions and other expenses
Reclassifications before income							Income (loss) from continuing
tax benefit (expense)		7			6		operations before taxes
Income tax benefit (expense)		(2	)		(2	)	Federal income tax expense (benefit)
Reclassifications, net of income tax	$	5		$	4		Net income (loss)